Navigating the Transatlantic Trade War With ETFs

The Eurozone economy has faced challenges from political instability and rising geopolitical tensions, with ongoing global economic and trade uncertainties adding to market volatility.

On Wednesday, President Trump announced a minimum 10% tariff on most goods imported into the United States, with an elevated 20% rate specifically for the EU. This led European shares to tumble to a two-month low on Thursday, falling about 1.7% as the markets opened. 

EU’s Struggle in Trade War

According to Reuters, U.S. imports to the EU amounted to 365.6 billion euros last year compared to EU exports across the Atlantic, which amounted to 532 billion euros. In addition to auto, steel and aluminum tariffs, a new wave of aggressive U.S. tariffs has further raised trade policy uncertainty, fueling concerns about an economic slowdown and higher inflation.

Per European Central Bank (ECB) estimates, as quoted on Reuters, a blanket 25% U.S. tariff on European imports would reduce eurozone growth by 0.3 percentage points in the first year. If the EU goes ahead with countermeasures on the United States, pushing the decline to 0.5 percentage points, it would ultimately backfire on the region.

The outlook for the European economy is closely linked to global markets, as many companies depend significantly on international revenues. With the escalating trade war fueling uncertainty among its key trading partners like China, 2025 could be a challenging year for European markets.

The EU’s Trade Dilemma

European Commission President Ursula von der Leyen, as quoted on CNBC, agreed with Trump that some countries exploit the current trade rules and supported efforts to modernize the global trading system.

However, she criticized the Trump administration's approach to reciprocal tariffs, arguing that they would do more harm than good, ultimately hurting the global economy. According to Reuters, the EU Chief stated that the single currency bloc is ready to implement countermeasures if talks with Washington fail, giving more preference to a negotiated solution.

These measures would be in addition to the retaliatory tariffs targeting up to $28.4 billion worth of U.S. goods, which were announced last month in response to the steel and aluminum tariffs by the United States.

According to Reuters, the EU would be hesitant to target U.S. oil and gas exports, which account for nearly a quarter of its imports from the United States, with experts calling for a more targeted countermeasure.

Who Bears the Bigger Trade War Bruise?

In the short to medium term, both the United States and the EU are likely to face tariff-led challenges, the only question is which side will bear the greater impact.

According to Bloomberg, President Donald Trump’s overhaul of the global trading system is affecting U.S. assets more than those in many of the major economies hit by his new tariffs. After Trump’s announcement following Wednesday’s market close, U.S. equity index futures fell over 4%, hinting that the country itself could be one of the biggest casualties of Trump’s protectionist policies.

The global trade landscape could become even more volatile if economies hit by U.S. tariffs decide to go ahead with countermeasures, further complicating matters for the world's largest economy, which is already dealing with rising recessionary fears.

U.S. Investors Eye Growth Across the Atlantic?

Per Blackrock, as quoted on Reuters, U.S. investors injected a record $10.6 billion into ETFs with a focus on European stocks, positioning EU as an appealing investment alternative. This marks a sharp shift in investor sentiment, after Europe-focused funds had witnessed a net outflow of $6.4 billion since the start of the Russia-Ukraine conflict.

ETFs to Consider

Below, we highlight a few ETFs with exposure to the Eurozone for investors to consider.

Vanguard FTSE Europe ETF VGK, iShares MSCI Eurozone ETF EZU, JPMorgan BetaBuilders Europe ETF BBEU, iShares Core MSCI Europe ETF IEUR and SPDR EURO STOXX 50 ETF FEZ can be considered.

VGK stands out as the most suitable and attractive option. With an annual fee of 0.06% and a one-month average trading volume of about 5.82 million shares, VGK offers strong liquidity and competitive fees. This makes it a solid choice for long-term investors while being a viable option for active trading strategies.

Investors can also consider Select STOXX Europe Aerospace & Defense ETF EUAD as defense stocks have started to garner more investor attention. According to Blackrock, EUAD has attracted $469 million in assets this year, amid calls from European leaders to strengthen their militaries.

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